Billionaire investor Wilbur Ross Jr. tells Newsmax that the U.S. government “seems to hate” big banks and is imposing new regulations placing them at a competitive disadvantage.
And while Ross doesn’t see the European debt crisis leading to disaster, he says several EU nations have “dysfunctional” economies that must be reformed to deal with the crisis.
In a wide-ranging exclusive interview with Newsmax.TV, Ross, the chairman and CEO of WL Ross & Co., also said:
• Gridlock will keep its hold on Washington if the Obama administration remains determined to engage in “class warfare.”
• Inflation will pose a long-term problem if the federal government continues to debase the currency with deficit spending.
• A new recession is unlikely.
• S&P’s downgrading of the United States’ credit rating is “silly.”
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Ross is one of the top turnaround financiers in the world, having been involved in the restructuring of more than $200 billion of defaulted companies’ assets. Forbes magazine reported Ross’ net worth in 2011 as $1.9 billion.
Ross said he disagrees with financier George Soros, who has said that the European debt crisis could turn out to be worse than the Lehman Brothers collapse.
“I don’t think it’s going to be disaster,” Ross told Newsmax.TV.
“I think we’ll go through agonizing moments, but at the end of the day, Europe needs two things: Somebody needs to write a very big check, and somebody needs to be the policeman," he said.
“Longer-term, the EU will be taking more centralized control of fiscal [affairs]. But shorter-term, what will have to happen is that they’ll have to bring in the [International Monetary Fund], partly to write a check and partly to act as the policeman. The IMF is used to being the policeman," he said.
“In terms of the countries like Greece, Spain, and Portugal, the budget deficits and debt are only part of their problem. The more serious problem I think is that the economies are dysfunctional. Their labor laws are bad. Doing business there is very, very difficult. Nobody pays taxes. They need all kinds of structural reform, and that’s going to be the hard part.”
Ross, who has recently made major investments in banks, was asked if big American banks like Citibank and Bank of America, which have taken a battering, are now undervalued and a good investment.
“The problem with the big banks is that the government seems to hate them,” Ross responds.
“The new Consumer Financial Protection group has just recently issued an 800-page document telling the big banks what to expect when they come in for their inspection. That’s on top of the normal inspections from the OCC [Office of the Comptroller of the Currency] and the Federal Reserve," he said.
“So there’s another whole layer of rules being imposed on the big banks. Also, they’re now being required to hold more capital than smaller banks. So I think the problem with the big banks is they used to have competitive advantages and now they’re about to be in a competitively disadvantaged position.”
After the debt-ceiling fiasco, S&P downgraded the United States’ AAA credit rating, citing political gridlock. Asked about this downgrade, Ross says: “First of all, I don’t agree with the downgrade. I think to have us downgraded and have France and five other EU countries Triple-A is silly. I don’t believe they are better credits than we are.
“I think what was good about the downgrade is that it was kind of a wakeup call to Washington and to the public at large that there is a problem coming up.”
The gridlock in Washington is the result in part of “the determination of this administration and the Democrats in the Congress to wage class warfare. And until they drop that, we will probably still have stalemates.”
If Democrats and Republicans can’t agree on a payroll tax cut extension, Ross said, “it will be bad because it would be a negative. It would take money out of circulation. But the argument isn’t over whether to extend it, the argument is over how to pay for it.
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“The Democrats are insisting it be paid for by taxing the more prosperous people. The Republicans are insisting it be paid for with cost reductions in government.
“And in the House they also added the Keystone Pipeline project, which certainly would stimulate the economy. So I agree with that addition.”
Discussing the economic downturn of recent years, Ross asserts that “the worst is over, although there could be intermediate dips, but no new recession or depression.” This is a “sensible time” for long-term investors to invest in the American economy, he said.
Ross says his firm has been investing in regional banks because they don’t have the regulatory burden of the big banks. He has also been investing in marine transport — vessels that haul petroleum and petroleum products — in the belief that currently troubled sector will turn around.
Ross remains bullish on Japan due in part to the resilience the Japanese people showed following the devastating earthquake and tsunami, and Japanese companies’ heavy concentration on exports to emerging countries.
Inflation isn't a short-term worry, Ross noted, but it is a long-term worry “if we keep debasing the currency by big deficit spending. But assuming we do something to rein in the deficit, I don’t think that inflation is going to be that much of a problem.”
Returning to the Obama administration’s strategy of “class warfare” in targeting wealthy Americans for tax increases, Ross says it “might be smart politics but it’s bad for the country. America had always been an aspirational society, and the right way is to find how to bring the lower class and the middle class into a mode where they can be more prosperous. The wrong thing is to try to tear down people who have become prosperous.”
The impact on the economy if Obama wins a second term would depend on what happens in Congress, Ross said. If the GOP retains the House and gains control of the Senate, as Ross believes is a definite possibility, “it’s unlikely that even an Obama victory would offset the congressional gains.”
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